Multifactor and analytical valuation of treasury bond futures with an embedded quality option

Nunes, João Pedro Vidal; Oliveira, Luís

doi:10.1002/fut.20250

Cited by 13 publications

(8 citation statements)

References 29 publications

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“…Similar formulas can be found in (Brody and Hughston, 2004, (3.3),(3.4)) in the framework of coherent interest-rate models and in Nunes and de Oliveira (2004) for multi-factor Gaussian HJM.…”

Section: Futures and Hjm Modelsupporting

confidence: 65%

Bonds Futures: Delta? No Gamma!

Henrard

2006

SSRN Journal

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Abstract. Bond futures are liquid but complex instruments. Here they are analysed in a onefactor Gaussian HJM model. The in-the-model delta and out-of-the-model delta and gamma are studied. An explicit formula is provided for in-the-model delta. The out-of-the-model delta and gamma are equivalent to partial derivatives with respect ot discount factors. In particular cases the derivative can not be obtain by standard techniques. The same situations lead to cases where the gammas (second order partial derivatives) do not exists.

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Section: Futures and Hjm Modelsupporting

confidence: 65%

Bonds Futures: Delta? No Gamma!

Henrard

2006

SSRN Journal

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“…Similar formulas can be found in (Brody & Hughston [2004], (3.3), (3.4)) in the framework of coherent interestrate models and in Nunes and de Oliveira [2004] for multi-factor Gaussian HJM.…”

Section: Definitionmentioning

confidence: 53%

“…The same formula can be found in Lin et al [1999] and Nunes and de Oliveira [2004]. Note that to obtain the equivalence all the terms were divided by the positive constants K i which is acceptable as the maximum is equal to 0.…”

Section: Future Pricing and Hjm Modelmentioning

confidence: 93%

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Bond Futures and Their Options

Henrard¹

2006

JFI

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“…More complex models of the TSIR dynamics (Hull andWhite 1990, Heath et al 1992, etc. ) are used in Paxon (1993) and, Sankarasubramanian (1992) and, Yu (1997), Chen et al (1999) or Nunes and Ferreira (2003). This paper will attempt to price the quality option by drawing on the standard methods of Pricing Theory, but the imposed assumptions will be as simple as possible.…”

Section: Introductionmentioning

confidence: 99%

On the future contract quality option: a new look

Balbás

Reichardt

2010

Applied Financial Economics

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The paper provides a new method to replicate and price the quality options usually embedded in many future contracts. The replicating strategies may draw on both the future contract and its related calls and puts. They also yield the quality option theoretical price in perfect markets, as well as upper and lower bounds for its bid or ask prices if frictions are incorporated. With respect to previous literature, this new approach seems to reflect four contributions: Firstly, the analysis does not depend on any dynamic assumption concerning the TSIR behaviour, secondly, it incorporates the information contained in calls and puts whose underlying security is the future contract, thirdly, it allows us to use real market perfectly synchronized prices, and fourthly, transaction costs can be considered. The paper presents an empirical test involving the German market that reveals some differences with regard to previous studies. Abstract. The paper provides a new method to replicate and price the quality options usually embedded in many future contracts. The replicating strategies may draw on both the future contract and its related calls and puts. They also yield the quality option theoretical price in perfect markets, as well as upper and lower bounds for its bid or ask prices if frictions are incorporated. With respect to previous literature, this new approach seems to reflect four contributions: Firstly, the analysis does not depend on any dynamic assumption concerning the TSIR behaviour, secondly, it incorporates the information contained in calls and puts whose underlying security is the future contract, thirdly, it allows us to use real market perfectly synchronized prices, and fourthly, transaction costs can be considered. The paper presents an empirical test involving the German market that reveals some differences with regard to previous studies. Keywords

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Multifactor and analytical valuation of treasury bond futures with an embedded quality option

Cited by 13 publications

References 29 publications

Bonds Futures: Delta? No Gamma!

Bonds Futures: Delta? No Gamma!

Bond Futures and Their Options

On the future contract quality option: a new look

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